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What Do Analysts Recommend for XLF’s Banking Stocks?

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Mar. 9 2016, Updated 2:07 p.m. ET

Analysts’ recommendations

In this part of the series, we’ll look at the most attractive banks based on analysts’ ratings and valuations. Among the 682 analysts covering the 21 banks within the Financial Select Sector SPDR ETF (XLF), 356 have provided “buy” ratings, 28 have given “sell” ratings, and 298 have provided “hold” ratings. With more than 50% “buy” ratings, analysts remain bullish on these stocks despite turbulent financial markets.

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Wall Street (SPY) analysts are mostly upbeat about Bank of America (BAC) as it has received “buy” ratings from 30 analysts amongst the 38 analysts who are covering the stock. Eight analysts are of the view that investors should continue holding this stock, and none of them believe the stock should be sold.

In contrast, analysts are mostly negative about the performance of Comerica (CMA) as the stock has received the least number of “buy” ratings. Out of the 30 analysts covering the stock, four believe the stock should be sold, 25 have rated it a “hold,” and five have assigned it a “buy” rating.

Valuations

Banks within XLF are trading at an average PBV (price-to-book value) ratio of 1.1x. Bank of America is the cheapest stock, with a PBV ratio of 0.6x, while Northern Trust (NTRS) is the most overvalued, with a PBV ratio of 1.8x.

Relative strength index

On average, the banking stocks within XLF ETF have a 14-day RSI (relative strength index) reading of 59, suggesting that they are still not overbought. Northern Trust and U.S. Bancorp have RSI readings of 64 and 58, respectively, which means they are closer to overbought territory. Meanwhile, Bank of America, which has an RSI reading of 56, may be considered undervalued.

RSI is a technical momentum indicator used to determine overbought or oversold conditions. An asset is deemed to be overbought once the RSI reading approaches 70, meaning that it may be becoming overvalued. Likewise, if the RSI reading approaches 30, it is an indication that an asset may be becoming oversold and is likely to become undervalued.

Read on to find out what moving averages tell us about the banks within XLF.

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